Time for a Long, Hard Look at Russia

Today the International Herald Tribune is carrying an op/ed I wrote.

Oil weapon: It’s time for a long, hard look at Russia Robert R. Amsterdam, International Herald Tribune LONDON A global economic challenge has been presented by Russia, driven by energy markets and threatening to distort the foundations of international trade. This challenge to the world follows grand-scale state theft and the subjugation of the rule of law in Russia. It is based on a flawed meta-narrative avowing that Russia is a victim: The West victimized Russia in the 1990s through shock therapy and Market Bolshevism, resulting in the domination of the country by oligarchs and its enfeeblement on the geopolitical stage. Therefore whatever path Russia takes today is somehow deemed acceptable as an antidote or corrective to the penuries of the 1990s. Beyond this ideological screen the Kremlin’s offensive represents the most brazen attack on the free market in a generation. It includes the development of state enterprises in the energy sphere acting as Trojan horses to freeze out Western players in Russia while at the same time distorting foreign energy markets by demanding access on the basis of free market principles. The Kremlin has stolen one of the world’s key oil producers and then resold it to Western investors who have now bought the same assets twice, with the complicity of Western banks. It has steered its foreign relations so as to divide the West. No sooner does the Kremlin have Romano Prodi accept market access for Gazprom than Gazprom seals a deal with Algeria to tie up over two thirds of Italy’s energy supply. In addition to disaggregation there is asymmetry. The failure to soften the Gazprom monopoly, which violates fundamental norms of competition, is somehow deemed acceptable because Western financiers and investors can participate in the resulting windfalls. The true brilliance of the Kremlin’s strategy is the concept of cooptation. Whether turning Germany against Poland or political leaders against their own people or ABN AMRO against a proud Dutch history of sensitivity to human rights, not only does everyone have a price, but everyone avoids shame while loudly declaring the beauty of the emperor’s clothes. The consequences are worrisome when political considerations trump capital markets logic and respect for law. It now seems that the first dividend of the Rosneft flotation was Russia’s revocation of Shell’s license to complete its $20 billion development of the Sakhalin-2 oil and gas project. Who is next? Another feature of the Russian offensive is speed. From Algeria to Iran to Venezuela, a new gas cartel is being formed. From Norway to Canada to Brazil, new opportunistic energy market players are being co- opted. From Slovakia to Lithuania to Poland and Ukraine, old-style energy hardball is being played involving everything from phony pipeline repairs to outright blockade. Indeed, political realists should applaud the Kremlin: Behind the smokescreen of relations with Brussels, the Russians are preparing to dominate the EU’s energy markets and are already driving wedges into the European economic space. Russia’s fuel diplomacy, and the abuses of state authority that have engendered it, present a challenge of historic proportions for the West. Western leaders must challenge their own assumptions about the real nature of the current Russian regime. A parallel may be drawn to 1946, when George Kennan dispatched his celebrated “long telegram” from the U.S. Embassy in Moscow. The 8,000-word dispatch provided an elaborate explanation of the undercurrents of the emerging post-war Soviet foreign policy. For more than a generation, Washington’s Cold War strategy of containment was grounded in the analysis and recommendations in the telegram. Today the world stands at a similar geopolitical turning point. Russia is mutating rapidly, and the post-Cold War window of opportunity to engage Russia as an ally and partner is closing. It is time for someone to write the “long telegram” of 2006 – not to reignite a Cold War, but to avert one by awakening to the realities and implications of a kleptocracy that poses real threats to global economic and political security. Robert R. Amsterdam, partner in the Canadian law firm Amsterdam & Peroff, is international defense counsel for Mikhail Khodorkovsky. This article expresses the author’s personal views.